Legal tricks and tips when buying a big boat
The bigger the vehicle, the more complex the acquisition process. A bicycle you can ride from the store. When it comes to purchasing a yacht, however, heading out to sea may have to wait a bit.
The process of buying a superyacht normally involves signing a memorandum of agreement with the seller. An approved standard agreement is available to every broker member of the Worldwide Yachting Association (MYBA). However, prior to signing any agreement, the buyer should have it reviewed by a lawyer with some expert knowledge on superyachts. Indeed a standard agreement often lacks certain details tailored to the specific purchase.
1. Preliminary steps
Prior to committing to any purchase and signing any agreement, ensure that you have had sights of all the superyacht specifications and details such as where the yacht is registered, whether there is a berth available for it, who owns the yacht, does the yacht charter and if yes what is its VAT status, how large is the crew and what are the annual running costs? These are some of the details that must be clarified with a superyacht lawyer. Discuss any pre-purchase arrangements that would be necessary to enable you to safely purchase the superyacht.
2. Prior to signing an agreement
Ensure that the purchase agreement is drafted and reviewed by a superyacht lawyer in view of all the superyacht specification and details of the purchase. Each sale and purchase is specific to the yacht, its status, flag and owner. It is therefore important to ensure that these are taken into account when drafting the agreement so that you are appropriately protected.
3. What are you buying?
It is important to be clear on what it is exactly you are buying and the memorandum of agreement should reflect this. Are you buying the superyacht free of any content or does the yacht include tenders, toys, art, and any accessories that form part of the interior? It is crucial for this purpose that the parties agree on an inventory so that there is no ambiguity. Such inventory can be prepared by the captain and will be submitted to each party. When purchasing the yacht, you also need to decide whether or not to keep the crew and the captain. If yes, then their crew agreement should be checked and you should ensure that there are no outstanding wages and/or expenses due. Additionally, your lawyer should enquire with the seller’s lawyer as to whether there is any ongoing or pending grievance you should be aware of. A similar exercise should be carried out for the superyacht service suppliers’ agreement.
4. Superyacht survey
It is essential to carry out a survey of the yacht prior to its purchase. The memorandum of agreement should provide for this and should give the opportunity to cancel the purchase and/or deduct any necessary repairs from the purchase price should the survey results be not satisfactory.
5. Superyacht sea trials
Similarly, the memorandum of agreement should provide for sea trials so that your captain can assess whether the yacht is in good functioning order. Again, the agreement should provide for you to be able to cancel/ terminate the agreement.
6. Purchase price
You should ascertain whether any taxes are due upon purchase and ensure that the purchase price agreed between the parties is inclusive of all and any taxes, VAT and duties which may be applicable to the superyacht. The memorandum of agreement should also provide for the yacht to be sold free of any encumbrance.
When acquiring an existing superyacht, it is vital to ensure that as part of the completion, you receive all the necessary and mandatory yacht documentation linked to its registration which also shows international convention compliance. These documents should be carefully checked by the superyacht lawyer so as to ensure that (a) the yacht complies with the international maritime conventions currently in force and (b) you have the necessary documents to register the yacht to the chosen flag (whether it is same or a different one) upon acquisition.
8. Flag registration
The superyacht lawyer should arrange for the yacht to be registered with the appropriate flag at the time of sale completion and delivery. Your lawyer will be able to advise you on the correct procedure and the appropriate flag to go to subject to your situation and ownership structure.
Arrange for the superyacht and crew to be insured in advance of the purchase so that all your covers are in place upon completion of the purchase. It is essential to seek advice from your lawyer but also an insurance broker regarding hull & machinery insurance which will cover the value of the yacht in the event of total loss, protection and indemnity insurance for third party liabilities and medical and personal accident cover for your crew. These are the essentials; however, you may also consider cover for kidnapping & ransom, and a full health cover for your crew.
10. Completion and delivery of the superyacht
The completion of a purchase and the delivery of the superyacht often take place simultaneously. There are obviously several conditions to fulfil to be able to complete such as receipt of all the corporate and regulatory documents, transfer of the purchase price into an escrow account ready to be paid to the seller, any original documents ready to be handed out to the purchaser, and the execution of the protocol of delivery and acceptance confirming safe receipt of the yacht ready to be handed out. All these actions take place at the same time so that you take delivery of the yacht at the same time as the seller receives the purchase funds. This last step should be prepared and executed properly. At the same time registration of the newly acquired yacht and insurance should come into place.
Article by Anouch Sedef
The author is a partner at R&R Avocats, a law firm based in Geneva.